February 12, 2018

India’s protectionist folly

By Vivek Dehejia, Pravin Krishna

In this Mint article, Resident Senior Fellow Vivek Dehejia and Pravin Krishna, Chung Ju Yung Distinguished Professor of International Economics and Business, Johns Hopkins University, write on India's Union Budget 2018-19 and its impacts for trade policy. Excerpts:


Reversing a 20-year trend, Union Budget 2018-19 substantially raises tariffs across a range of sectors: Thus, on imported mobile phones, the applicable rate jumps from 15% to 20%, in addition to a 15% tariff on certain components of mobile phones and television sets... As economists specializing in international trade, we believe this is mistaken and misguided. First, though, we note that the possibility of degenerating into old-fashioned import substituting industrialization (ISI) was always implicit if Make In India was not carefully and appropriately construed. Thus, writing in this newspaper on 21 December 2014 (“Making An Industrial Superpower”), soon after the scheme launched, one of us (Dehejia) warned explicitly of this possibility:


“One possible danger of a focus on manufacturing...is a reversion, willy nilly, to a policy of...ISI, which was a centrepiece of the failed development paradigm pursued in India, Latin America and elsewhere.”


In simpler terms, we’ve seen this movie before, and it doesn’t have a happy ending.


The 2014 piece goes on to argue that the correct interpretation would be—not as industrial or trade policy—but as a commitment to getting the basics right, and allowing the laws of economics to play out.


As India has a natural comparative advantage in labour-intensive economic activities, such activities should, perforce, thrive, were the playing field to be levelled—such as the provision of adequate infrastructure for manufacturing and the elimination or reform of crippling anti-business labour laws. We still believe this to be the correct interpretation of Make In India’s laudable goal of boosting labour-intensive economic activity in India.


Read the whole article here.


Topic : State Capacity / In : OP-EDS
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